Angie’s List or Yelp: A Review of the Business Review Companies
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Angie’s List (NASDAQ: ANGI) and Yelp (NYSE: YELP) are two leading online business review companies that provide consumer-driven information on local businesses. Potential customers can read existing business reviews from past customers when searching to hire a local business for a personal or household need. Here companies, especially small service providers, attract consumers using not only company-initiated promotional advertising, but also customer-posted positive comments. This is both beneficial to the otherwise unaided consumers and rewarding to companies providing high-quality services. For many, the old ways of trying to find a reputable local business can be very ineffective sometimes, if not totally frustrating. With companies like Angie’s List and Yelp, their online and mobile service platforms have offered a better way for consumers and businesses to engage with each other. Other services such as Google Places and Bing Local can also provide relevant search lists of local businesses. But they often lack specific rating information about the companies listed, making them less useful to consumers trying to decide which service provider to choose.
Providing similar business review information, Angie’s List and Yelp operate under two completely different business models: the paid-membership-subscription model and the free-user-access model respectively. Overall, neither model has had a proven track record of being effective and financially sustainable, and both Angie’s List and Yelp in particular have yet to show a profit. While companies have to decide which online-service platform to build, investors must also choose where to put their money. The success or failure of the business model of an investor’s choosing will mean the return or loss of his investments. Surprisingly, online companies are still evolving and nowhere near a fully-developed state more than a decade after the first dot-com bubble. There may be again bursts and pops along the way. For something to eventually emerge as a winner, it has to help not only enhance the consumer experience, but also generate profits for the company providing consumers with the unique experience.
So what may work out well over the long run? Given the two seemingly competing business models, do you invest in Angie’s List, believing in its membership-subscription model or do you rather invest in Yelp, counting on the free-access model? While Angie’s List derives its revenue from both members’ subscriptions and service providers’ ad spending, Yelp relies solely on advertisers for its revenue generating. It seems that at the moment Angie’s List may have better positioned itself in sourcing revenue.
But upon further review, investors should know that the ability of Angie’s List to generate revenue from dual sources may have been compromised by its commitment to working with only the most highly-rated service providers. This calls for a company policy that automatically disallows certain service providers to advertise with Angie’s List, potentially reducing the company's ad revenue. On the other hand, Yelp sells to all likely advertisers, and it is the users’ own responsibility to choose whom they think is the best. For the year of 2011, Angie’s List had a sales-to-equity ratio of 1.96, compared with 2.68 for Yelp, indicating that Yelp is actually more effective in generating revenue.
So far investors have indeed shown more interest in Yelp than Angie’s List, when judged by the two companies' respective price-to-book ratios: more than 40 for Yelp vs. just over 18 for Angie’s List. Yelp stock’s daily trading volume is also about double that for Angie’s List. Unless more consumers are bought into the idea of paying subscriptions for enhanced services, Angie’s List will be more or less a niche-market player. According to the company’s 10-K filing, the average household income for its members is over $100,000 annually. Targeting a relatively affluent group of consumers, Angie’s List has a current paying member base of only 1.1 million, compared with Yelp’s 71.4 million unique visitors monthly. However, the upside for Yelp may also be questionable because the company may increase its revenue by competing only for more shares of the online advertising, which has become the one selling point for almost every Web company.
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